WESTERN DIGITAL TECHNOLOGIES INC.,BANGALORE V. DCIT, INTERNATIONAL TAXATION, CIRCLE-2(1), BANGALORE

ITITA 611/BANG/2025

AI Insights

The case revolves around the taxability of income earned by Western Digital Technologies Inc (WDT), a foreign company, from its operations in India through SanDisk India, and the treatment of certain reimbursements as Fees for Technical Services (FTS). The Income Tax Department had concluded that SanDisk India constituted a Dependent Agency PE of WDT, making the income earned through these operations taxable in India. Additionally, it was argued that reimbursements made for salaries of seconded employees were in the nature of FTS. The Tribunal, referencing a previous decision in the same matter, found that SanDisk India did not create a PE for WDT and that the reimbursements were not FTS, thus not taxable under Indian law.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 714777 (ITAT-BANGALORE)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 05-08-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2018-2019
• Other Referred Cases: SanDisk International Limited vs. ITAT Bangalore
• Laws Referred To: Income Tax Act, 1961, India-USA Double Taxation Avoidance Agreement (DTAA)
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VILAS V SHINDE
• Assessee Lawyers: AJAY ROTTI
• Keywords: Set aside; Business income; Transfer pricing; International transaction; Rule of consistency; TDS; Initiation of penalty proceedings; Double taxation relief; Permanent establishment
• Section: 234B; 133A

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER IT(IT)A No. 611/Bang/2025 Assessment Year: 2018-19 Western Digital Technologies Inc, 3355, Michelson Drive, Suite 100 Irvine, California 92612, Foreign United States. PAN – AACCW 9270 F Vs. The Dy. Commissioner of Income Tax, (International Taxation), Circle – 2(1), Bengaluru. APPELLANT RESPONDENT Assessee by : Shri Ajay Rotti, CA Revenue by : Shri Vilas V Shinde, CIT (DR) Date of hearing : 03.06.2025 Date of Pronouncement : 05.08.2025 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the Final Assessment order passed by the ld. CIT (International Transaction), Bangalore dated 30/01/2025 in DIN No. ITBA/AST/S/147/2024-25/1072714517(1) for the assessment year 2018-19. 2. The assessee has raised as many as 11 grounds of appeal and sub ground thereunder which run into 3 pages. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 2 of 21 . 3. The issues raised by the assessee in Grounds Nos. 1 & 11 of the appeal are general in nature and do not require any specific adjudication. Therefore, these grounds are dismissed as infructuous. 4. The issues in Ground No. 7, 8 & 9 relate to the levy of interest under section 234A & 234B of the Act and levy of fee under section 234F of the Act. Since the levy of interest under section 234A & 234B and levy of fee under section 234F of the Act is consequential in nature and dependent on the outcome of the assessment, hence these grounds are also dismissed as infructuous. 5. The issue raised in Ground No. 10 pertains to the initiation of penalty proceedings under section 270A, 271A, 271AA and 271BA of the Act. The penalty proceedings are premature at this stage; therefore, these are also dismissed accordingly as infructuous. 6. The issue raised in Ground No. 2 pertains to the validity of final assessment order. 7. At the outset, we note the learned AR of the assessee before us submitted that issue raised in the captioned ground of appeal is not pressed. Accordingly, we hereby dismiss the same as not pressed. 8. The issue raised by the assessee in Grounds Nos. 3 & 4 of the appeal is that the ld. AO/ Ld. DRP erred in treating M/s SanDisk India as a Dependent Agency Permanent Establishment (PE) of the assessee and its distributor as PE, consequently, taxing the assessee's income in India. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 3 of 21 . 9. The facts in brief are as follows: the assessee is a foreign company based in California, United States. SanDisk India Device Design Centre Pvt. Ltd. (now known as Western Digital India, hereinafter referred to as SanDisk India) became part of the assessee’s group by virtue of the acquisition of its parent company, SanDisk USA LLC, in May 2016. 9.1 During the year under consideration, the assessee has made sales in India amounting to $ 9,12,76,842/- but not offered income in India. Further, SanDisk India was subjected to survey proceedings on January 16 and 17, 2019 at its office premise. During the survey operation, various documentary materials, emails, and statements of several employees were examined. The analysis of the documents and statements revealed that SanDisk India undertakes a broad range of operations, such as marketing, technical support, sales, customer assistance, and product development, which go beyond auxiliary services. Based on these findings, the AO made the following observations: • SanDisk India has fully operational teams, including sales, marketing, product development, technical support, and customer service. Its Indian operations are overseen by a country head who represents the parent company’s business interests in India. This indicates that Western Digital Technologies (WDT) conducts business activities in India through SanDisk India. • The various teams at SanDisk India are involved in every stage of the sales process for the products of the SanDisk group or other SanDisk overseas entities in India. Their roles include product customization, customer support, and price negotiations. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 4 of 21 . • The Sales Team identifies potential customers and connects them with SanDisk Ireland’s distributors. It acts as an intermediary between SanDisk Ireland, distributors, and customers, handling tasks such as product identification, customization, and order routing. The team influences pricing by negotiating with SanDisk Ireland and is also responsible for identifying resellers and conducting awareness programs, training, and incentive schemes to onboard them into SanDisk Ireland’s network. • The Technical Team and Field Application Engineers (FAEs) assist customers with pre-sales, post-sales, and technical support. They work closely with R&D teams to resolve customer issues and develop tailored solutions. • The Business Development Team manages price negotiations with suppliers, which, in turn, guide the Sales Team in setting prices for customers. • The Marketing Team develops strategies and promotional programs to support resellers and customer acquisition. • Operational Framework: Once pricing is finalized, orders are processed through SanDisk India’s account management system for coordination and execution. Logistics are handled by third- party vendors to ensure timely delivery. • Revenue Attribution: Although the sales and marketing functions are carried out in India, revenue is attributed to SanDisk International Limited, Ireland. 10. Based on the above, the AO concluded that SanDisk India operates an indirect sales model involving distributors and resellers, with Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 5 of 21 . its activities extending beyond basic support functions. These activities include marketing strategies, distributor reward programs, customer identification, and supplier negotiations. SanDisk India is heavily involved in price negotiations and customer interactions, fulfilling customer requirements. However, procurement, product delivery, and payment collection are handled by the Ireland office. The Ireland office manages supplier interactions, shipment arrangements, and payment handling. While the Indian teams carry out critical business processes, the revenue is recognized by the Ireland office, which also issues the final purchase orders. Products are shipped directly from overseas warehouses to customers in India. Sales and performance targets are provided by the Ireland/USA offices. The Indian operations actively support these processes but avoid direct involvement in procurement or payment collection to maintain a specific operational structure. 10.1 This framework led the AO to conclude that SanDisk India’s involvement in various stages of the business and sales processes classifies it as a Dependent Agency PE of the assessee in India under the India-USA Double Taxation Avoidance Agreement (DTAA). Consequently, the income attributable to these operations is taxable in India. 10.2 Without prejudice to the above the AO held that the distribution model of the assessee creates a business connection of the assessee in India and thereby as per the provision of section 9(1) of the Act, the income accrues or arise whether directly or indirectly through or from business connection in India is taxable in India. The AO noted that the distributor concludes contracts with customer, maintains inventory level of the products, obtains order from the customer and place order to the Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 6 of 21 . assessee on weekly basis. The distributors are also involved in the sales promotion plan and also develop & market the sales plan. They closely involve and interact with SanDisk India also. Hence, the business activity carried out through the distributors acting on behalf of the assessee creates a business connection in India. 10.3 The AO in the light of the above proposed to bring the income of the assessee to tax for Rs. 176,45,92,536/- by observing as under: “Having concluded that SanDisk India (presently Western Digital) is a PE of the assessee in India, considering that all Indian operations of the assessee are connected with SanDisk India (presently Western Digital). Therefore, the profit attribution is required to be made in the instant case. since the assessee has not furnished any details regarding its global income and other indices, therefore it is difficult to make FAR Analysis in this case. As a result the AO is constrained to attribute profit based on estimation. In the case of Daikin (Supra) ITAT Delhi had estimated profit at the rate of 10% relatable to direct sales and 30% of profits attributable to operations carried out by DAPE in India. Accordingly, a net profit rate of 30% on revenue from operations is being estimated as a business income of the assessee. The revenue from the sale of products earned by Western Digital India for the year ending 31/03/2018 is USD 91,267,7842. ” 11. The aggrieved assessee filed objections before the ld. Dispute Resolution Panel (DRP). 12. The assessee before the ld. DRP submitted that the AO wrongly concluded that SanDisk India constituted a dependent agency Permanent Establishment (PE) of WDT in India. The assessee clarified that during the relevant financial year, SanDisk India did not provide any marketing support services to WDT. Instead, SanDisk India only provided supervisory services for sales made by WDT in India during the fourth quarter of FY 2017-18, i.e., from January 1, 2018 to March 31, 2018. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 7 of 21 . 12.1 The assessee explained that during the relevant period, only one employee from SanDisk India was involved, and his role was limited to overseeing and following up with the sales teams regarding orders placed by distributors. The employee did not interact with customers, negotiate prices, or conclude contracts. Therefore, no business connection or dependent agency PE was created. 12.2 Further, the assessee pointed out that distributors in India purchased goods from WDT on a principal-to-principal basis and sold them to end customers in India. The distributors independently concluded contracts with customers and raised invoices in their own names. The assessee emphasized that the distributors were acting independently in their ordinary course of business and not as agents of WDT. Therefore, the question of creating a dependent agency PE did not arise. 12.3 The assessee also submitted that the AO failed to apply his mind and incorrectly concluded that SanDisk India’s services and the distributorship model created a business connection in India. The assessee referred to the provisions of the Act and the India-USA Double Taxation Avoidance Agreement (DTAA), explaining that a PE can only be created under certain specific circumstances, such as when a person habitually concludes contracts on behalf of the foreign enterprise or maintains stock for regular delivery. In the present case, no such conditions were met. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 8 of 21 . 12.4 The assessee also relied on case law, including a ruling by the Bangalore ITAT in the case of SanDisk International Limited, where it was held that similar services by SanDisk India did not create a dependent agency PE. 13. However, the ld. DRP rejected the assessee’s objection and upheld the AO’s findings by following the view taken by the learned DRP in the own case of the assessee for A.Y. 2017-18. As such, the ld. DRP aligned its decision with the observations made by the AO, thereby confirming the existence of a Dependent Agency PE and the related tax implications. 14. Being aggrieved by the direction order of the learned DRP and the AO, the assessee is in appeal before us. 15. The learned AR before us filed a paper book running from pages 1 to 282 and contended that there was no transaction between the assessee and SanDisk India in relation to marketing selling or distribution of its product in India. Accordingly, the question of dependent agency permanent establishment does not arise for calculating the income chargeable to tax in the hands of the assessee being a foreign company. 15.1 The learned AR further contended the distributors purchased the goods from the assessee on principal to principal basis and carrying out their business independently. Hence, the question of establishment of business connection in India thereby creation of agency PE does not arise. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 9 of 21 . 16. On the other hand, the learned DR supported the findings of the AO and the ld. DRP, asserting that SanDisk India played a significant role in facilitating the assessee’s business in India, as evidenced by the survey findings. The ld. DR highlighted that the activities of SanDisk India—such as price negotiations, customer support, and marketing— were not ancillary but integral to the sales process. 16.1 The ld. DR further contended that the AO and ld. DRP had rightly concluded that SanDisk India constituted a Dependent Agency PE of the assessee in India under the provisions of the India-USA DTAA. Consequently, the income attributable to these activities was rightly brought under the tax ambit in India. 17. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that in the own case of the assessee for the A.Y. 2017-18, the AO based on the identical facts held that the SanDisk India creates a dependent agency PE for the assessee therefore income attributable is taxable in India. The disputed reached before this Tribunal in the assessee’s appeal bearing IT(IT) No. 344/Bang/2024. The Bench vide order dated 10-12-2024 decided the dispute in favour of the assessee. The relevant observation of the bench in the said appeal is extracted as under: 12. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, it is evident that a survey operation under Section 133A of the Income Tax Act was conducted at the business premises of SanDisk India. During the survey, various documents, including emails, were recovered, and statements from several employees were recorded. 12.1 Based on the findings of the survey, the Assessing Officer (AO) concluded that SanDisk India was actively working to generate business for the assessee company, thereby creating a Dependent Agency Permanent Establishment (hereafter DAPE) for the assessee in India. Consequently, the Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 10 of 21 . AO determined that the income generated by the foreign company (the assessee) from operations attributable to India which was subject to tax in India. This view was subsequently upheld by the learned Dispute Resolution Panel (DRP). 12.2 Before addressing the specific issue, it is essential to refer to the relevant clauses of the Double Taxation Avoidance Agreement (DTAA) between India and the USA. Article 5 of the DTAA addresses the concept of permanent establishment (PE), with Clauses 4 and 5 specifically dealing with the issue of DAPE. The relevant provisions are as follows: 4. Notwithstanding the provisions of paragraphs 1 and 2, where a person—other than an agent of an independent status to whom paragraph 5 applies - is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State, if : (a) he has and habitually exercises in the first-mentioned State an authority to conclude on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would not make that fixed place of business a permanent establishment under the provisions of that paragraph ; (b) he has no such authority but habitually maintains in the first- mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in the State on behalf of the enterprise have contributed to the sale of the goods or merchandise ; or (c) he habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph. 12.3 Clauses 4 and 5 of Article 5 outline the circumstances under which a dependent agent creates a permanent establishment for a foreign enterprise. A key criterion is the authority of the agent to conclude contracts on behalf of the foreign company. If the agent habitually exercises such authority, it establishes a PE for the foreign enterprise. If the agent has such authority and regularly exercises it, then the agent is considered to create a permanent establishment for the foreign company. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 11 of 21 . 12.4 To determine whether SanDisk India qualifies as a DAPE of the assessee under the given and facts circumstances, it is pertinent to summarize the AO's findings based on the survey: • The Sales Team identifies potential customers and connects them with SanDisk Ireland’s distributors. It acts as an intermediary between SanDisk Ireland, distributors, and customers, handling tasks such as product identification, customization, and order routing. The team influences pricing by negotiating with SanDisk Ireland and is also responsible for identifying resellers and conducting awareness programs, training, and incentive schemes to onboard them into SanDisk Ireland’s network. • Revenue Attribution: Although the sales and marketing functions are carried out in India, revenue is attributed to SanDisk International Limited, Ireland. 12.5 From the above, it is transpired that SanDisk India was involved in sales activities connected to SanDisk Ireland’s operations in India. SanDisk India disclosed in its financial statements and Transfer Pricing (TP) study report that it provided marketing support services exclusively to SanDisk Ireland, not the assessee company. 12.6 There is no material on record to prove that any transaction or substantial transaction between the assessee and SanDisk India in the nature of sale and market support or the SanDisk India was involved in any manner in sales made by the assessee company in India which can be made basis for the treating the SanDisk India as DAPE of the Assessee company. 12.7 Thus, the question arises, whether the company namely SanDisk India can be treated as DAPE of the assessee in the given facts and circumstances. Under the DTAA, an Indian entity qualifies as a DAPE for a foreign enterprise only if it: 1. Exercises or habitually exercises authority to conclude contracts on behalf of the foreign enterprise; 2. Maintains stock and delivers goods on behalf of the foreign enterprise; 3. Secures orders wholly or almost wholly for the foreign enterprise; or 4. Devotes its activities wholly or almost wholly to the foreign enterprise, with transactions not conducted at arm’s length. 12.8 Only under these conditions specified above, an Indian entity will be considered a Dependent Agency Permanent Establishment (DAPE) of the foreign enterprise. Nevertheless, there are no transactions occurring between the two parties i.e. assessee and SanDisk that satisfy the criteria outlined, therefore, there is no basis for treating the Indian entity as a dependent agent capable of creating a PE. 12.9 In simple terms, if the Indian company (SanDisk India) has not provided any services or entered into any agreement to provide services related to the sales or marketing of the foreign company's (assessee's) products, the concept of a Dependent Agency PE does not arise. As noted Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 12 of 21 . earlier from the observations made by the Assessing Officer (AO), which were based on materials found during the survey proceedings, SanDisk India was, to some extent, involved in the sales made by SanDisk Ireland. The materials on record also indicate that there was a formal agreement between SanDisk India and SanDisk Ireland for providing market research support and services, for which SanDisk India received fees. 12.10. It is further observed that the survey materials used against the appellant assessee were also utilized by the Revenue Authorities in making assessments in the hands of SanDisk Ireland. Based on the same materials and employee statements from SanDisk India, the Revenue Authorities held that SanDisk India constituted a Dependent Agency Permanent Establishment (DAPE) of SanDisk Ireland, and consequently, the income of SanDisk Ireland was deemed taxable in India. Assessments were accordingly made in the case of SanDisk Ireland for the Assessment Years (AYs) 2012-13 to 2017-18. 12.13 The dispute in the case of SanDisk Ireland was brought before this Tribunal in the assessee's appeals bearing ITA Nos. 763 to 768/Bang/2022. The coordinate bench of the Tribunal, in its order dated August 25, 2023, after analyzing the statements recorded, referenced materials, and agreements, concluded that the activities carried out by SanDisk India for SanDisk Ireland did not constitute a DAPE. In view of the above, we hereby set aside the order of the ld. DRP/ AO with the direction not to hold M/s SanDisk India as dependent Agency PE and consequently the assessee income is not chargeable to tax in India. Hence, the ground of appeal of the assessee is allowed. 17.1 Before us, no material has been placed on record by the Revenue demonstrating that the decision of the Tribunal in the own case of the assessee discussed above has been set aside/stayed or overruled by the Higher Judicial Authorities. Before us, no material was placed on record pointing out any distinguishing feature in the facts of the case of earlier AY and the year under consideration. Thus, respectfully following the order of the Tribunal in the own case of the assessee discussed above, we hereby hold that the SanDisk India does not creates a Dependent Agency PE for the assessee. 17.2 Coming to the issue of distribution model of the assessee based on which it was alleged that the distributor creates an agency PE of the assessee in India. Before going into detail, we note that those Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 13 of 21 . distributors have been working for the assessee since 2010. In the past years, the assessee was subject to scrutiny assessments and the information regarding the distribution model of the assessee was very much on record. But the revenue authority nowhere alleged that those distributors created agency PE for the assessee. However, without any change in the facts and in the law, the revenue authority in the year under consideration alleged that the distributor creates agency PE for the assessee. Hence the Revenue authority deviated from the consistent view taken in the earlier years. It is trite law that in the absence of any change in the facts and in the law, the principles of consistency should be followed. Therefore, in our considered opinion and considering the rule of consistency, the view taken by the revenue authority is not sustainable. In view of the above discussion and after considering the present facts and circumstances, we hereby set aside the finding of the learned DRP and the AO and hold that no dependent agency of PE or agency PE of the assessee establishes in India in the given facts and consequently income of the assessee is not chargeable to tax in India. Hence, the grounds of appeal of the assessee are hereby allowed. 18. The issue raised by the assessee in Ground No. 5 of the appeal pertains to the alleged error by the AO and learned DRP in treating the reimbursement of salary expenses for seconded employees as Fees for Technical Services (FTS). 19. The facts of the case indicate that the assessee seconded its employees to its Indian subsidiary, SanDisk India, under a secondment agreement. SanDisk India reimbursed the salary expenses of these seconded employees to the assessee company, after deducting Tax Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 14 of 21 . Deducted at Source (TDS) under section 192 of the Income Tax Act, 1961, in the names of the employees. 20. The AO observed that secondment arrangements typically occur in group companies where global organizations send employees to subsidiaries in other countries for a temporary period to optimize skills, expertise, and resources. These arrangements aim to share technical and administrative knowledge, enabling the local employees of the subsidiary to benefit in future operations. The AO noted that the seconded employees remained under the purview of their original employer, with their employment relationship continuing with the assessee company. There was no direct employer-employee relationship between SanDisk India and the seconded employees. Instead, the AO concluded that the contractual relationship existed between the assessee company and SanDisk India, with the seconded employees providing services on behalf of the assessee. 20.1 The AO further determined that the services rendered by the seconded employees were technical, managerial, and administrative, thereby qualifying as FTS under section 9(1)(vii) of the Act. The AO also concluded that the arrangement fulfilled the \"make available\" clause under the Double Taxation Avoidance Agreement (DTAA), as the expertise shared by the seconded employees with SanDisk India was intended to enable the later to use such knowledge independently in future operations. The AO relied on the judgment of the Delhi High Court in the case of Centrica India Offshore Pvt. Ltd. [44 taxmann.com 300] to support this conclusion. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 15 of 21 . 20.2 The AO rejected the assessee's argument that the payments were mere reimbursements of salary on which TDS under section 192 had been duly deducted by SanDisk India. It was held that the amount received by the assessee from SanDisk India constituted income in the nature of FTS and was taxable in India. The AO noted that SanDisk India was required to deduct tax at source under section 195 of the Act on such payments to the assessee company. Furthermore, the AO clarified that the salary paid to the seconded employees was taxable as individual income, and the assessee company was liable to deduct tax under section 192 of the Act. By transferring this responsibility to SanDisk India, the assessee company could not claim exemption from tax liability. 20.3 Relying on additional judgments, including Northern Operating Systems Ltd. (Supreme Court) [138 taxmann.com 359] and Morgan Stanley & Co. Inc. [292 ITR 416], the AO proposed to treat the amount of ₹ 3,49,25,728/- received by the assessee from SanDisk India as FTS taxable in India. Accordingly, the AO proposed an addition to the total income of the assessee. 21. The aggrieved assessee preferred to file objection before the learned DRP. 22. The assessee submits that the learned AO has wrongly treated the reimbursement of salaries paid to seconded employees as fees for technical services (FTS). The assessee states that these payments are not in the nature of technical service fees but are mere reimbursements made on a cost-to-cost basis, without any profit element. The assessee Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 16 of 21 . also submits that SanDisk India, out of abundant caution, has already deducted and paid the applicable taxes on the salaries paid to these seconded employees under section 192 of the Income-tax Act. Further, SanDisk India has also withheld taxes on the reimbursement of such salaries under section 195 of the Act, even though such withholding was not required in law. 22.1 The assessee further submits that the learned AO has ignored the facts and legal position explained in detail and has made the adjustment without properly appreciating the facts of the case. The assessee relies on various judicial precedents, including the rulings of the Hon’ble Supreme Court and the Bangalore Tribunal, which have consistently held that pure reimbursement of salaries paid to seconded employees does not constitute fees for technical services. Therefore, the assessee prays that the addition made by treating the reimbursement of salaries as FTS may kindly be deleted. 23. However, the learned DRP rejected the assessee's contentions and upheld the findings of the AO. The learned DRP observed that SanDisk India had entered into secondment contracts with overseas group companies. Under these contracts, the foreign company’s employees, having the required skills, were sent temporarily to the Indian company for specific assignments. The ld. DRP noted that during this secondment, although the Indian entity exercised operational control over the employees, the expats continued to remain employees of the foreign entity. After completing the secondment, they returned to their original employer, and there was no instance where the Indian company had permanently employed or terminated them. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 17 of 21 . 23.1 The learned DRP also observed that the seconded employees were sent by the real employer to the Indian entity and the overseas company also compensated for any loss in their net income. This clearly showed that the master-servant relationship existed between the foreign company and the secondees, and not with the Indian company. It was also noted that the Indian company made payments for the work done by these secondees, which involved technical, managerial, and consultancy functions. According to the ld. DRP, these services amounted to making available technical knowledge and expertise to the Indian entity. 23.1 Based on this, the learned DRP held that the payment made by the Indian company to the foreign company for seconded employees was in the nature of fees for technical services (FTS). The DRP referred to the definition of FTS under section 9(1)(vii) of the Income-tax Act and also under the India-USA DTAA and concluded that such reimbursement fell within the scope of \"fees for included services\" as it made available technical knowledge and skills to the Indian company. 24. Being aggrieved by the direction of the learned DRP and assessment order the assessee is in appeal before us. 25. The learned AR before us submitted that the issue on hand is covered in favour of the assessee by the order of the ITAT in its own case for the earlier assessment year. Accordingly, the learned AR contended that the payment to the seconded employees cannot be regarded as fees for technical services. Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 18 of 21 . 26. On the other hand, the learned DR before us vehemently supported the order of the authorities below. 27. We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that in the own case of the assessee for the A.Y. 2017-18 the AO based on the identical facts held that the reimbursement made by SanDisk India to the assessee on account of seconded employee amounts to FTS and the same is taxable in India. The disputed reached before this Tribunal in assessee’s appeal bearing IT(IT) No. 344/Bang/2024. The bench vide order dated 10-12-2024 decided the dispute in the favor of the assessee for statistical purposes. The relevant observation of the bench in the said appeal are extracted as under: 20. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, the issue arises for adjudication whether the reimbursement of salary as claimed by the assessee represents the fees for technical services and therefore the same is liable to TDS under the provisions of section 195 of the Act. Indeed, the fees for technical services (FTS) are subject to Tax Deducted at Source (TDS) under the Double Taxation Avoidance Agreement (DTAA) between India and the USA. The Article 12 of the DTAA between India and the USA deals with Fees for Technical Services (FTS) 20.1 Article 12 of the India-US DTAA deals with the taxation of fees for technical services (FTS). It provides specific rules for taxing FTS, which are payments made for services that are technical or advisory in nature. Article 12(1) – General Rule for FTS 20.2 Under Article 12(1) of the DTAA, the country of the source of income (i.e., India) has the right to tax fees for technical services, subject to the provisions of the agreement. This means that if a US-based company is providing technical services to an Indian entity, India has the right to tax these fees, provided certain conditions are met. \"Payments of fees for technical services may be taxed in the Contracting State in which the services are rendered.\" Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 19 of 21 . Article 12(2) – Definition of Fees for Technical Services 20.3 The DTAA defines technical services as services that: • Are of a technical or consultancy nature, • Typically involve skills, expertise, or knowledge in specific fields like engineering, architecture, or scientific work. 20.4 However, there are exceptions to this general rule, depending on the nature of the services provided. For example, the DTAA provides exemptions in cases where the service is related to routine or simple services that do not involve technical expertise. 20.5 Be that as it may be, certainly, the \"make available\" clause is an important consideration in the taxation of fees for technical services (FTS) under the India-US DTAA. This clause helps in determining whether certain services will be classified as technical services subject to tax in India, based on whether the services \"make available\" technical knowledge, skills, or expertise to the recipient. If the make available clause is absent in the agreement or contract, the taxation of fees for technical services may be affected. The clause limits the scope of fees for technical services to situations where the service provided makes available technical knowledge, skills, or expertise to the recipient. \"Fees for technical services\" means payments for services of a technical, managerial, or consultancy nature, but does not include services where the recipient is not able to apply the technical knowledge, skills, or expertise received to further their own business or activities. The \"Make Available\" Clause in Article 12 of the India-US DTAA 20.6 Under Article 12(4) of the India-US DTAA, the treaty provides a specific definition of fees for technical services (FTS), which includes a provision that requires the technical knowledge, experience, skill, or process to be \"made available\" to the recipient for it to qualify as fees for technical services. The term ‘fees for technical services’ means payments of any kind to any person in consideration for the rendering of any technical, managerial, or consultancy services (including the provision of services of technical or other personnel), but does not include any payments for services rendered in connection with the sale of goods or merchandise, or the performance of any other activity of a preparatory or auxiliary character, unless the services make available technical knowledge, skills, or processes. 20.7 If the make available clause is included in a tax treaty, then only those services that make available technical knowledge, skills, or expertise (which the recipient can then use independently in the future) are subject to taxation as technical services. 20.8 Now turning to the facts of the present case, we note that the ld. AR before us submitted that agreement between the assessee and the SanDisk India is of indefinite period which implies that the assessee did not make available the technical know-how to the SanDisk. Hence, there was no reason for deducting the TDS under the provisions of section 195 of the Act read with DTAA (between India and USA). Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 20 of 21 . 20.9 In our considered view, an agreement of indefinite may indicate that the recipient is dependent on the service provider, as there is no point at which the recipient is equipped to handle the services independently. In such cases, payments under the agreement are unlikely to qualify as FTS under the \"Make Available\" clause. In view of the above, we hold that the amount received by the assessee against the services rendered to SanDisk India cannot be classified as FTS under the provisions of the DTAA and therefore the same cannot be made subject to the provisions of tax in the hands of the assessee. However, in the absence of the relevant agreement to justify indefinite period, we are accordingly, inclined to set aside the finding of the ld. DRP and remit the issue to the file of the AO for fresh adjudication as per law and in the light of above stated discussion. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes. 27.1 Before us, no material has been placed on record by the Revenue demonstrating that the decision of the Tribunal in own case of the assessee as discussed above has been set aside/stayed or overruled by the Higher Judicial Authorities. Before us, no material was placed on record pointing out any distinguishing feature in the facts of the case of earlier AY and the year under consideration. Thus, respectfully following the order of the Tribunal in the own case of the assessee discussed above, we hereby set aside the issue to the file of the AO in the light of the above discussion. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes. 28. The issue raised by the assessee in Grounds Nos. 6 of the appeal pertain to margin of the sale attributable to India. 29. At the outset we note that issue raised in captioned ground is connected to the issue raised in ground Nos. 3 and 4 of the assessee’s appeal, in relation to creation of PE of the assessee in India. We vide paragraph No. 17 of this order held that there is no PE of the assessee created in India. Hence, the issue raised regarding the margin become Printed from counselvise.com IT(IT)A No.611/Bang/2025 Page 21 of 21 . redundant. Therefore, we hereby dismiss the present ground of appeal of the assessee as infructuous. 30. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in court on 5th day of August, 2025 Sd/- Sd/- (PRAKASH CHAND YADAV) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 5th August*, 2025 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore Printed from counselvise.com "